Manage a Borrower’s Bankruptcy for A Large Investment Trust, Recovered 100% of the Loan and Preserved the Value of its Bonds
•Original balance of about $6.9 million, secured by cash flow from 57 rental homes
•Five-year, interest-only loan originated in 2017, and scheduled to mature in November 2022
•100% recovery of the loan and all expenses
In 2017, a large Investment Trust provided a $6.9 million, five-year, interest-only loan to a Syndicator, which formed an entity to invest in approximately 57 single-family, middle-income rental properties. The Syndicator sold interests to limited partners with different rates of return, driven by cash flow from the rents. In June 2020, the limited partners sued the Syndicator, claiming their investment returns did not match what had been promised. In response, the Syndicator filed Chapter 11. The bankruptcy filing caused the Investment Trust’s loan to be transferred to the special servicer, SitusAMC. The Investment Trust wanted to move quickly to foreclose on the borrower and sell the collateral.
SitusAMC’s experienced team of special servicers gathered market data and deployed resources to evaluate the properties’ condition, quickly recognizing that the collateral was worth far more than the outstanding loan balance. Although the Trust was well within its rights to have a receiver appointed to foreclose on the property, SitusAMC demonstrated how bankruptcy would take longer, be more costly, and pose the risk that the Trust would end up owning the properties. This would incur immediate liabilities, along with the headaches and costs of remote property management. SitusAMC persuaded the borrower to pay the Trust the release price in the loan documents, plus the yield for bondholders on each sale. In exchange, the borrower would be given more time to conduct the property sale, ultimately yielding more equity for the borrower and other creditors. SitusAMC then designed an aggressive liquidation plan and engaged a third-party firm to market the properties, guiding those transactions through the rest of the year.
The trust was fully paid out by the second quarter of 2021, recovering 100% of the loan and all expenses, including special servicer expenses. The solution also preserved the value of the Trust’s bonds